Redwood Trust, Inc. (NYSE:RWT; "Redwood" or the "Company"), a leader in expanding access to housing for homebuyers and renters, today reported its financial results for the quarter ended June 30, 2023.
Key Q2 2023 Financial Results and Metrics
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GAAP book value per common share was $9.26 at June 30, 2023, a 1.5% decrease from $9.40 per share at March 31, 2023
- Economic return on book valueof 0.2%(1)
- GAAP net income available to common stockholders of $1 million or $0.00 per diluted common share
- Non-GAAP Earnings Available for Distribution ("EAD") of $16 million or $0.14per basic common share(2)
- Recourse leverage ratio of 2.2x at June 30, 2023(3)
- Declared and paid a regular quarterly dividend of $0.16 per common share
Operational Business Highlights
Residential Mortgage Banking
- Established new forward flow relationships with depository institutions; Redwood's loan seller network represents approximately 45% of jumbo origination market share(4)
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Locked $567 million(5) and purchased $184 million of jumbo loans
- Purchase activity included three bulk pools from depositories; most of the underlying loans were seasoned and acquired at attractive discounts
- Increased capital allocated to Residential Mortgage Banking from $15 million at March 31, 2023, to $80 million at June 30, 2023
Business Purpose Mortgage Banking
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Established joint venture ("JV") with Oaktree Capital Management, L.P. ("Oaktree") to invest in CoreVest-originated bridge loans, creating recurring fee-based revenue
- JV expected to have total purchasing power of up to $1 billion inclusive of secured financing
- Funded $406 million of business purpose loans; 68% Bridge and 32% Term
- Sold $200 million of business purpose loans to third parties
Investment Portfolio
- Deployed approximately $50 million of capital into internally sourced investments, while generating incremental capital from sales of non-strategic third-party assets
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Underlying credit remained stable in the aggregate, and within our modeled expectations
- RPL and jumbo securities saw continued declines in 90 day+ delinquencies
- 90 day+ delinquency rates across our combined CAFL securities and bridge loan portfolios of 4.2%, compared to 2.0% in the prior quarter(6)
- Secured recourse leverage ratio of 1.0x at June 30, 2023(7)
Financing Highlights
- Unrestricted cash and cash equivalents of $357 million (representing 114% of outstanding marginable debt)(8) and unencumbered assets of $206 million at June 30, 2023
- Successfully renewed maturing loan warehouse financing facilities with key counterparties and extinguished under-utilized facilities
- $2.6 billion of excess financing capacity across warehouse facilities at June 30, 2023
Capital Markets Highlights
- Repurchased $31 million of Redwood's convertible debt due August 2023, reducing the outstanding balance to approximately $113 million, which will be fully repaid at maturity in August utilizing existing cash on hand
RWT Horizons Highlights
- Completed two investments in the second quarter, including one follow-on investment in an existing RWT Horizons portfolio company
- Since inception, RWT Horizons has completed 33 technology venture investments in 27 companies, with over $27 million of investment commitments
Q3 2023 Highlights to Date
- DBRS Morningstar confirmed CoreVest's special servicer ranking, acknowledging CoreVest's successful performance in loan management
- Continued to add new forward flow jumbo loan relationships which we expect to positively contribute to volumes in the third quarter of 2023 and beyond(9)
“The second quarter saw Redwood secure some notable partnership and relationship wins that we believe will support the growth, scale, distribution and earnings power of our operating platforms going forward,” said Christopher Abate, Chief Executive Officer of Redwood. “Our conservative positioning in recent quarters has allowed us to take advantage of significant opportunities we are now beginning to see as the regulatory environment changes for banks. With the Fed potentially nearing the end of its historic rate-hike cycle, we expect Redwood's strategic relevance to a transforming housing finance sector to rise significantly."
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- Economic return on book value is based on the period change in GAAP book value per common share plus dividends declared per common share in the period.
- Earnings available for distribution is a non-GAAP measure. See Non-GAAP Disclosures section that follows for additional information on this measure.
- Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $9.1 billion of consolidated securitization debt (ABS issued and servicer advance financing) and other debt that is non-recourse to Redwood, and tangible stockholders' equity excludes $58 million of goodwill and intangible assets.
- Estimated seller network market share is based on aggregate jumbo loan origination volume from January 2021 through March 2023 by current and potential Redwood loan sellers, divided by industry-wide jumbo loan origination volume for the same period. Source: Company data; Inside Mortgage Finance.
- Lock volume does not account for potential fallout from pipeline that typically occurs through the lending process.
- Calculated as business purpose lending ("BPL") loans in our consolidated CAFL securitizations, bridge loans held for investment, and bridge and term loans held-for-sale with a delinquent payment greater than 90 days divided by the total notional balance of consolidated CAFL securitizations, bridge loans held for investment, and bridge and term loans held for sale.
- Secured recourse leverage ratio for our Investment Portfolio is defined as secured recourse debt financing our investment portfolio assets divided by capital allocated to our investment portfolio.
- Non-marginable debt and marginable debt refers to whether such debt is subject to margin calls based solely on the lender’s determination, in its discretion, of the market value of underlying collateral that is non-delinquent. Non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of loans, or a change in the interest rate of a specified reference security relative to a base interest rate amount, among other reasons.
- Based on management's estimates and actual results may vary materially.
Second Quarter 2023 Redwood Review and Supplemental Tables Available Online
A further discussion of Redwood's business and financial results is included in the second quarter 2023 Shareholder Letter and Redwood Review which are available under "Financial Info" within the Investor Relations section of the Company’s website at redwoodtrust.com/investor-relations. Additional supplemental financial tables can also be found within this section of the Company's website.
Conference Call and Webcast
Redwood will host an earnings call today, July 27, 2023, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its second quarter 2023 financial results. The number to dial in order to listen to the conference call is 1-877-423-9813 in the U.S. and Canada. International callers must dial 1-201-689-8573. A replay of the call will be available through midnight on Thursday, August 10, 2023, and can be accessed by dialing 1-844-512-2921 in the U.S. and Canada or 1-412-317-6671 internationally and entering access code #13739318.
The conference call will be webcast live in listen-only mode through the News & Events section of Redwood’s Investor Relations website at https://www.redwoodtrust.com/investor-relations/news-events/events. To listen to the webcast, please go to Redwood's website at least 15 minutes before the call to register and to download and install any needed audio software. An audio replay of the call will also be available on Redwood's website following the call. Redwood plans to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission by Wednesday August 9, 2023, and also make it available on Redwood’s website.
About Redwood
Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company focused on several distinct areas of housing credit. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors, through our best-in-class securitization platforms; whole-loan distribution activities; and our publicly traded shares. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking and Investment Portfolio. Additionally, through RWT Horizons, our venture investing initiative, we invest in early-stage companies strategically aligned with our business across the lending, real estate, and financial technology sectors to drive innovations across our residential and business-purpose lending platforms. Since going public in 1994, we have managed our business through several cycles, built a track record of innovation, and established a best-in-class reputation for service and a common-sense approach to credit investing. Redwood Trust is internally managed and structured as a real estate investment trust ("REIT") for tax purposes. For more information about Redwood, please visit our website at www.redwoodtrust.com or connect with us on LinkedIn.
Cautionary Statement; Forward-Looking Statements:
This press release and the related conference call contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to the amount of residential mortgage loans that we identified for purchase during the second quarter of 2023, expected fallout and the corresponding volume of residential mortgage loans expected to be available for purchase, residential mortgage loans subject to forward sale commitments, the expected purchasing power of our JV with Oaktree, the expected repayment at maturity of our convertible debt due August 2023, and the expected timing for the filing of Redwood's Quarterly Report on Form 10-Q. Forward-looking statements involve numerous risks and uncertainties. Redwood's actual results may differ from Redwood's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, opportunities, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2022 under the caption “Risk Factors”. Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
REDWOOD TRUST, INC.
($ in millions, except per share data) | Three Months Ended | ||||||
6/30/2023 | 3/31/2023 | ||||||
Financial Performance | |||||||
Net income per diluted common share | $ | 0.00 | $ | 0.02 | |||
Net income per basic common share | $ | 0.00 | $ | 0.02 | |||
EAD per basic common share (non-GAAP) | $ | 0.14 | $ | 0.11 | |||
Return on Common Equity ("ROE") (annualized) | 0.4 | % | 1.2 | % | |||
EAD Return on Common Equity ("EAD ROE") (annualized, non-GAAP) | 6.2 | % | 5.1 | % | |||
Book Value per Common Share | $ | 9.26 | $ | 9.40 | |||
Dividend per Common Share | $ | 0.16 | $ | 0.23 | |||
Economic Return on Book Value (1) | 0.2 | % | 0.8 | % | |||
Recourse Leverage Ratio (2) | 2.2 | x | 2.3 | x | |||
Operating Metrics | |||||||
Business Purpose Loans | |||||||
Term fundings | $ | 129 | $ | 174 | |||
Bridge fundings | 278 | 264 | |||||
Term sold | 180 | 218 | |||||
Bridge sold | 19 | 13 | |||||
Residential Jumbo Loans | |||||||
Locks | $ | 567 | $ | 117 | |||
Purchases | 184 | 52 | |||||
Securitized | — | 657 | |||||
Sold | 9 | 29 | |||||
(1) | Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period. | |
(2) | Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. At June 30, 2023, and March 31, 2023, recourse debt excluded $9.1 billion and $9.4 billion, respectively, of consolidated securitization debt (ABS issued and servicer advance financing) and other debt that is non-recourse to Redwood, and tangible stockholders' equity excluded $58 million and $61 million, respectively, of goodwill and intangible assets. |
REDWOOD TRUST, INC.
Consolidated Income Statements (1) | Three Months Ended | |||||||||||||||||||
($ in millions, except share and per share data) | 6/30/23 | 3/31/23 | 12/31/22 | 9/30/22 | 6/30/22 | |||||||||||||||
Interest income | $ | 179 | $ | 179 | $ | 173 | $ | 178 | $ | 167 | ||||||||||
Interest expense | (153 | ) | (152 | ) | (146 | ) | (143 | ) | (127 | ) | ||||||||||
Net interest income | 26 | 26 | 27 | 35 | 40 | |||||||||||||||
Non-interest income (loss) | ||||||||||||||||||||
Residential mortgage banking activities, net | 7 | 3 | (14 | ) | 2 | (18 | ) | |||||||||||||
Business purpose mortgage banking activities, net | 9 | 13 | (3 | ) | 14 | (12 | ) | |||||||||||||
Investment fair value changes, net | (5 | ) | — | (24 | ) | (58 | ) | (88 | ) | |||||||||||
Other income, net | 4 | 5 | 4 | 4 | 7 | |||||||||||||||
Realized gains, net | 1 | — | 3 | — | — | |||||||||||||||
Total non-interest income (loss), net | 17 | 21 | (33 | ) | (37 | ) | (111 | ) | ||||||||||||
General and administrative expenses | (31 | ) | (36 | ) | (39 | ) | (38 | ) | (30 | ) | ||||||||||
Portfolio management costs | (3 | ) | (4 | ) | (3 | ) | (2 | ) | (2 | ) | ||||||||||
Loan acquisition costs | (1 | ) | (1 | ) | (1 | ) | (2 | ) | (3 | ) | ||||||||||
Other expenses | (5 | ) | (4 | ) | (4 | ) | (4 | ) | (3 | ) | ||||||||||
(Provision for) benefit from income taxes | — | 1 | 9 | (1 | ) | 9 | ||||||||||||||
Net income (loss) | $ | 3 | $ | 5 | $ | (44 | ) | $ | (50 | ) | $ | (100 | ) | |||||||
Dividends on preferred | ||||||||||||||||||||
